Garcia Industries produces tool and die machinery for manufacturers. The company expanded vertically in $20$x$1$ by acquiring one of its suppliers of alloy steel plates, Keimer Steel Company. To manage the two separate businesses, the operations of Keimer are reported separately as an investment center.

Garcia monitors its divisions on the basis of both unit contribution and return on average investment $($ROI$),$ with investment defined as average operating assets employed. Management bonuses are determined on ROI. All investments in operating assets are expected to earn a minimum return of $15$ percent before income taxes.

Keimer's cost of goods sold is considered to be entirely variable, while the division's administrative expenses are not dependent on volume. Selling expenses are a mixed cost with $30$ percent attributed to sales volume. Keimer contemplated a capital acquisition with an estimated ROI of $17\mathrm{.}30$ percent; however, division management decided against the investment because it believed that the investment would decrease Keimer's overall ROI.

The $20$x$2$ operating statement for Keimer follows. The division's operating assets employed were $$12,823,200$ at November $30,20$x$2,$ a $4$ percent increase over the $20$x$1$ year$-$end balance.

Keimer Steel Company

Operating Statement

For the Year Ended November $30,20$x$2$

Sales revenue $$25,522,000$

Less expenses:

Cost of goods sold $$16,589,300$

Administrative expenses $4,074,000$

Selling expenses $2,633,00023,296,300$

Operating income before income taxes $$2,225,700$

Required:

$1.$ Calculate the unit contribution for Keimer Steel Company if $1,225,700$ units were produced and sold during the year ended November $30,20$x$2.$ Round your answer to the nearest cent.

$ fill in the blank $1$

per unit

$2.$ Calculate the following performance measures for $20$x$2$ for Keimer Steel Company:

a$.$ Pretax return on average investment in operating assets employed $($ROI$).$ Round your percentage answer to two decimal places $($for example, the decimal $\mathrm{.}10555$ would be entered as $"10\mathrm{.}56"$ percent$).$

fill in the blank $2$

$\%$

b$.$ Residual income calculated on the basis of average operating assets employed. Round your answer to the nearest cent.

$ fill in the blank $3$

$3.$ Explain why the management of Keimer Steel Company would have been more likely to accept the contemplated capital acquisition if residual income rather than ROI were used as a performance measure.

Management is likely to reject any investment that would increase the overall ROI.

$4.$ Keimer Steel Company is a separate investment center within Garcia Industries. Identify several items that Keimer should control if it is to be evaluated fairly by either the ROI or residual income performance measures. $($CMA adapted$)$